An open offer is a secondary market offering that allows existing shareholders in a company to purchase new shares in the business on a pre-emptive basis and at a lower price, or discounted rate, to the prevailing market value.
The principle of pre-emption tends to be achieved by guaranteeing each existing shareholder’s minimum entitlement, which is based on their existing shareholding in the business before the offer.
Any shares that are not taken up by existing shareholders can be sold to other shareholders who applied to take shares in excess of their minimum entitlement. If there are more excess applications than shares available, then all applications are scaled down on a pro-rata basis.
Open offers often run in tandem with other share offerings, such as a placing or rights issue. This is because issuing new shares can dilute existing investors, so an open offer, for example, can help existing shareholders maintain their stake or minimise dilution from a placing. While both open offers and rights issue entitles investors to purchase more shares, you can only sell that entitlement on to an external investor under a rights issue, and not an open offer.